Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Event-Driven

Several 'real' indications are emerging that HMG restructuring is really around the corner. The new FTC head Cho Sung-wook is saying that her top priority will be to push ahead with the Fair Trade Act amendment. At the center of this amendment stands the controlling stake % requirement change of subsidiaries subject to the intra group deals regulation from 30% to 20% for both listed and unlisted. Improved earnings and union wage deal are also helping pave the way. Yesterday's Autoever block deals are also viewed as another indication.

Several 'real' indications are emerging that HMG restructuring is really around the corner. The new FTC head Cho Sung-wook is saying that her top priority will be to push ahead with the Fair Trade Act amendment. At the center of this amendment stands the controlling stake % requirement change of subsidiaries subject to the intra group deals regulation from 30% to 20% for both listed and unlisted. Improved earnings and union wage deal are also helping pave the way. Yesterday's Autoever block deals are also viewed as another indication.

HMG Restructuring: New FTC Head, Union Wage Deal & Autoever Block Deals

The HMG restructuring speculation is widely spreading in Korea. This isn't only market speculation. Some of Korea's established news outlets are putting out reports suggesting that the HMG restructuring is really imminent. CES first brought this up at the Carlyle meeting back in May. Then, two months later HMG had an overseas IR specifically designed for the restructuring. This kind of IR is certainly rare for HMG. Finally, what is being heard locally is that HMG demanded both Mobis and Glovis to put all the major projects on hold. This immediately sparked market wide speculation that the restructuring announcement is really just around corner.

The HMG restructuring speculation is widely spreading in Korea. This isn't only market speculation. Some of Korea's established news outlets are putting out reports suggesting that the HMG restructuring is really imminent. CES first brought this up at the Carlyle meeting back in May. Then, two months later HMG had an overseas IR specifically designed for the restructuring. This kind of IR is certainly rare for HMG. Finally, what is being heard locally is that HMG demanded both Mobis and Glovis to put all the major projects on hold. This immediately sparked market wide speculation that the restructuring announcement is really just around corner.

HMG Restructuring Speculation: HMG Ordered Mobis/Glovis to Put Major Projects on Hold

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

It was reported after the market close yesterday that <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1">LG Corp (003550 KS)</a> plans to sell 35% or more stake of LG CNS for about 1 trillion won. LG CNS is the system integration IT service unit of the LG Group.We believe that this announcement to sell about 35% stake of LG CNS will provide a further positive boost to LG Corp's share price since it could increase the probability of paying out higher dividends.LG CNS has relatively stable financials. It generated sales of 3.1 trillion won (up 3.8% YoY) and operating profit of 187.1 billion won (down 25.5% YoY) in 2018. The company's operating margin averaged 6.1% during this period.

It was reported after the market close yesterday that LG Corp (003550 KS) plans to sell 35% or more stake of LG CNS for about 1 trillion won. LG CNS is the system integration IT service unit of the LG Group.We believe that this announcement to sell about 35% stake of LG CNS will provide a further positive boost to LG Corp's share price since it could increase the probability of paying out higher dividends.LG CNS has relatively stable financials. It generated sales of 3.1 trillion won (up 3.8% YoY) and operating profit of 187.1 billion won (down 25.5% YoY) in 2018. The company's operating margin averaged 6.1% during this period.

Korea M&A Spotlight: LG Corp Plans to Sell 35% Stake of LG CNS for About 1 Trillion Won

Materials Analyst/Strategist, Janus Analysis

Gaius King

Materials Analyst/Strategist

Accelerating Tomorrow’s Independent Research

Boost Research

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Thematic (Sector/Industry)

<ul>
<li>Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth</li>
<li>Widespread adoption of Hydrogen considered unlikely</li>
<li>41% of Platinum &amp; 84% of Palladium reliant on autocatalyst demand</li>
<li>Hybrids in Europe up 107% in three years at 1:7 to diesel counterparts, without subsidies</li>
<li>Hybrid premium ~ 8% like-for-like over a combustion vehicle </li>
<li>Carpooling/ride-share platforms have hallmarks of being a macro-trend</li>
<li>W. Asian carpool CAGR of 77.6% over past 11 years</li>
<li>Est. by close 2019 &gt;62m people globally will utilise trans. platforms, forgoing car ownership
</li>
<li>Adverse impact on vehicle growth, models, drive-trains, R&amp;D, insurance &amp; finance </li>
<li>Logistics industry diesel transitioning will affect LT PGM demand, in particular platinum</li>
<li>Primary platinum-surplus to grow in time, downward pressure on price</li>
</ul>
Auto-catalysts make up the majority of platinums (41%) and in particular, palladium (84%) end use demand.  To determine the future demand profile for PGMs, therefore, we examined the types and likelihood of future drivetrains, as well as technologies affecting unit demand.
Hydrogen's key attraction is its potential green credentials, and if it was to ever became a reality, resultant PGM catalyst demand would outstrip all existing suppliers.  To achieve that noble aim, however, gargantuan energy resources would be needed to conduct electrolysis of water, thermodynamically, a very energy intensive process.  Our analysis concludes that hydrogen will remain a boutique industry, confined to economies with abundant hydrocarbon production, with conversion relying on steam reformation.  Overall impact of hydrogen on PGM demand, will be marginal at best.
Presently, EVs have substantial range and recharge hurdles to overcome before they could ever be a primary mode of transport for many; with global demand primarily driven by Chinese directives, not by the Western consumer.  In the short to medium-term, we do not expect EVs to impact PGM demand significantly.  However, we preface that statement by our belief that in the longer-term, the largest adopter of EVs will be within the commercial logistics sector, currently dominated by diesel power plants, which rely on a substantial amount of platinum within its auto-catalysts.  Widespread adoption of EVs and robotic drones and the replacement of traditional diesel drivetrains will only exacerbate current over-supply in platinum, in time, we forecast its price to fall substantially.
Hybrid sales are up 107% in Europe over the past three years without any state subsidies.  It is reasonable to assume that potential demand of PGMs have, and will continue to be, stymied by hybrid advances.  But we expect overall (even modest) growth in car volume sales should maintain current market dynamics, in the short to medium term.
Carpooling and a host of other transactional transport options are now a realistic, flexible and affordable life-style choice, that contradict the necessity of car ownership.  Especially among the inner-city urbanites, with Asia averaging a CAGR of 77.6% over the past decade.  Car manufacturers are already experiencing significant sales headwinds.  On average it has been found that members/fleet ratio (i.e. No. of cars divided by No. of members) range between 61 – 76, a fraction of unit demand when compared with an average Western family of three or four members, often owning two vehicles.  Using decade average regional CAGRs, projecting three years in advance, the potential number of decreased car sales globally could reach 62m by the close of 2019.  To put that into context, Volkswagen and Toyota produce between 10 to 11m  units each pa.  This raises the question of whether recent sluggish global car sales is somehow related to the almost exponential growth in carpooling/ride-share platforms?


Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth
Widespread adoption of Hydrogen considered unlikely
41% of Platinum &amp; 84% of Palladium reliant on autocatalyst demand
Hybrids in Europe up 107% in three years at 1:7 to diesel counterparts, without subsidies
Hybrid premium ~ 8% like-for-like over a combustion vehicle 
Carpooling/ride-share platforms have hallmarks of being a macro-trend
W. Asian carpool CAGR of 77.6% over past 11 years
Est. by close 2019 &gt;62m people globally will utilise trans. platforms, forgoing car ownership

Adverse impact on vehicle growth, models, drive-trains, R&amp;D, insurance &amp; finance 
Logistics industry diesel transitioning will affect LT PGM demand, in particular platinum
Primary platinum-surplus to grow in time, downward pressure on price

Auto-catalysts make up the majority of platinums (41%) and in particular, palladium (84%) end use demand.  To determine the future demand profile for PGMs, therefore, we examined the types and likelihood of future drivetrains, as well as technologies affecting unit demand.
Hydrogen's key attraction is its potential green credentials, and if it was to ever became a reality, resultant PGM catalyst demand would outstrip all existing suppliers.  To achieve that noble aim, however, gargantuan energy resources would be needed to conduct electrolysis of water, thermodynamically, a very energy intensive process.  Our analysis concludes that hydrogen will remain a boutique industry, confined to economies with abundant hydrocarbon production, with conversion relying on steam reformation.  Overall impact of hydrogen on PGM demand, will be marginal at best.
Presently, EVs have substantial range and recharge hurdles to overcome before they could ever be a primary mode of transport for many; with global demand primarily driven by Chinese directives, not by the Western consumer.  In the short to medium-term, we do not expect EVs to impact PGM demand significantly.  However, we preface that statement by our belief that in the longer-term, the largest adopter of EVs will be within the commercial logistics sector, currently dominated by diesel power plants, which rely on a substantial amount of platinum within its auto-catalysts.  Widespread adoption of EVs and robotic drones and the replacement of traditional diesel drivetrains will only exacerbate current over-supply in platinum, in time, we forecast its price to fall substantially.
Hybrid sales are up 107% in Europe over the past three years without any state subsidies.  It is reasonable to assume that potential demand of PGMs have, and will continue to be, stymied by hybrid advances.  But we expect overall (even modest) growth in car volume sales should maintain current market dynamics, in the short to medium term.
Carpooling and a host of other transactional transport options are now a realistic, flexible and affordable life-style choice, that contradict the necessity of car ownership.  Especially among the inner-city urbanites, with Asia averaging a CAGR of 77.6% over the past decade.  Car manufacturers are already experiencing significant sales headwinds.  On average it has been found that members/fleet ratio (i.e. No. of cars divided by No. of members) range between 61 – 76, a fraction of unit demand when compared with an average Western family of three or four members, often owning two vehicles.  Using decade average regional CAGRs, projecting three years in advance, the potential number of decreased car sales globally could reach 62m by the close of 2019.  To put that into context, Volkswagen and Toyota produce between 10 to 11m  units each pa.  This raises the question of whether recent sluggish global car sales is somehow related to the almost exponential growth in carpooling/ride-share platforms?

PGMs: Facing Technological Obsolescence? (P. 2)

The top 10 events impacting the Korean stock market, economy, &amp; politics in March were as follows:<ul>
<li>SEMICONDUCTOR SECTOR WARNINGS</li>
<li>KOREAN AIR &amp; ASIANA AIR CHAIRMEN ARE THROWN OUT/QUIT</li>
<li>HYUNDAI AUTOEVER IPO</li>
<li>KOREAN COMPANIES SHUTTING DOWN &amp; RESTRUCTURING OPERATIONS IN CHINA</li>
<li>NEXON M&amp;A</li>
<li>KOSPI 200 &amp; KOSDAQ 150 REBALANCING</li>
<li>CONSERVATIVES VS. LIBERALS POPULARITY IN KOREA</li>
<li>FINE DUST PROBLEM</li>
<li>CLOSING OUT THE HYOSUNG TNC/HYOSUNG CORP PAIR TRADE</li>
<li>BURNING SUN</li>
</ul><hr>The top three reports we wrote in March related to the Korean market were as follows (in terms of views &amp; appreciates): <ul>
<li><a href="https://www.smartkarma.com/insights/nexon-valuation-analysis" target="_blank" data-smartkarma-citation="insights:28306">Nexon Valuation Analysis</a></li>
<li><a href="https://www.smartkarma.com/insights/a-list-of-major-korean-companies-shutting-down-or-restructuring-their-operations-in-china" target="_blank" data-smartkarma-citation="insights:28745">A List of Major Korean Companies Shutting Down or Restructuring Their Operations in China</a></li>
<li><a href="https://www.smartkarma.com/insights/hyundai-autoever-ipo-valuation-analysis" target="_blank" data-smartkarma-citation="insights:28398">Hyundai Autoever IPO Valuation Analysis</a></li>
</ul>Our model portfolio was up 0.3% in March (cash is 35% of model portfolio), outperforming KOSPI which was down 2.5% in March. Our model portfolio is equal-weighted at the beginning of each month. The top performing stocks in our model portfolio in March included <a href="https://www.smartkarma.com/entities/15983" target="_blank" data-smartkarma-citation="entities:15983:1">F&amp;F Co Ltd (007700 KS)</a>, <a href="https://www.smartkarma.com/entities/14122" target="_blank" data-smartkarma-citation="entities:14122:1">Nongshim Co Ltd (004370 KS)</a>, and <a href="https://www.smartkarma.com/entities/5169" target="_blank" data-smartkarma-citation="entities:5169:1">NCsoft Corp (036570 KS)</a>.

The top 10 events impacting the Korean stock market, economy, &amp; politics in March were as follows:
SEMICONDUCTOR SECTOR WARNINGS
KOREAN AIR &amp; ASIANA AIR CHAIRMEN ARE THROWN OUT/QUIT
HYUNDAI AUTOEVER IPO
KOREAN COMPANIES SHUTTING DOWN &amp; RESTRUCTURING OPERATIONS IN CHINA
NEXON M&amp;A
KOSPI 200 &amp; KOSDAQ 150 REBALANCING
CONSERVATIVES VS. LIBERALS POPULARITY IN KOREA
FINE DUST PROBLEM
CLOSING OUT THE HYOSUNG TNC/HYOSUNG CORP PAIR TRADE
BURNING SUN
The top three reports we wrote in March related to the Korean market were as follows (in terms of views &amp; appreciates): 
Nexon Valuation Analysis
A List of Major Korean Companies Shutting Down or Restructuring Their Operations in China
Hyundai Autoever IPO Valuation Analysis
Our model portfolio was up 0.3% in March (cash is 35% of model portfolio), outperforming KOSPI which was down 2.5% in March. Our model portfolio is equal-weighted at the beginning of each month. The top performing stocks in our model portfolio in March included F&amp;F Co Ltd (007700 KS), Nongshim Co Ltd (004370 KS), and NCsoft Corp (036570 KS). 

Korea Stock Market Monthly Recap #34 (March 2019)

South Korea

Hyundai Autoever Corp. provides information technology services. The Company offers system integration, system management, information system development, and other services. Hyundai Autoever offers services worldwide.

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Hyundai Autoever (307950 KS)

HMG Restructuring: New FTC Head, Union Wage Deal & Autoever Block Deals

Several 'real' indications are emerging that HMG restructuring is really around the corner. The new FTC head Cho Sung-wook is saying that her top...

Sanghyun Park

HMG Restructuring Speculation: HMG Ordered Mobis/Glovis to Put Major Projects on Hold

The HMG restructuring speculation is widely spreading in Korea. This isn't only market speculation. Some of Korea's established news outlets are...

Sanghyun Park

Korea M&A Spotlight: LG Corp Plans to Sell 35% Stake of LG CNS for About 1 Trillion Won

It was reported after the market close yesterday that LG Corp (003550 KS) plans to sell 35% or more stake of LG CNS for about 1 trillion won. LG...

Douglas Kim

PGMs: Facing Technological Obsolescence? (P. 2)

Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth Widespread adoption of Hydrogen considered unlikely 41% of...

Boost Research

Korea Stock Market Monthly Recap #34 (March 2019)

The top 10 events impacting the Korean stock market, economy, & politics in March were as follows: SEMICONDUCTOR SECTOR WARNINGS KOREAN AIR...

Douglas Kim

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52-week Range

Market Cap (USDm)

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